(Click figure for more clarity)
Saturday, January 8, 2011
(Click figure for more clarity)
How are technicals looking for UT stock? It felt "terrible" in December and suddenly "feels" good after an almost 20% move up from the recent bottom. Seems obvious but its good to know why that is and more importantly what to do at that moment (if any).
So, I did some TA on the stock and found some interesting points. Since the stock topped at $3.26 in April and the low in June ($1.65) it has been consolidating for some period. A symmetric triangle has now been formed by the events of the last few months. I have drawn a lower/rising support line from the lows in September and a resistance/falling line at the peak in October highs. This support line basically held throughout the October-November period after the revenue shortfall announcement but broke down in December. Volume actually picked up during this time which was worrisome but not really huge volume (only over 1m on a couple of days). It stopped going down in the $1.9s range (which is the lows in Sept). This was actually a critical hold for the stock as it was a FAKE breakdown, which is what we want to see in a symmetric triangle. Now, after a 20% rally, it is coming towards the resistance line.
While a major breakout is possible, it has to do it soon and it will take some huge volume. Barring that, it will continue to complete the triangle and trade in the $2-2.2 range and then its 50-50. Re-drawing the bottom support line shows it should have very good support and it may NOT ever see the $1s again for a long time and if we do, it is not a good sign.
Upside Target: The peak range is ($3.26-1.65) = $1.61. If it breaks out, it could hit $4 as an initial target. Breaking down in the $2 range would bring the stock to 35 cents.
Here is a definition of a symmetric triangle with some of my side comments in italics:
Most consolidation patterns are about indecision -- traders are uncertain about the near term direction of the stock so they do nothing. Symmetrical triangles are different because when a stock falls into one of these patterns, traders actually behave as though they have reached a consensus regarding price (Easy to dismiss the $2 level as a consensus like one poster Tigre has). We know this because there is a uniform narrowing of price over time. Symmetrical triangles usually develop after a stock has had a spectacular move (Feb - April 2010 when it moved from $1.8s to $3.2s). After reaching a relative new high price momentum may begin to fade modestly and the stock works lower. Because the fundamental news is so strong, Wall Street analysts will often dismiss this weakness as mere profit taking following a lengthy advance (UT didn't actually have strong fundamental news at the time but you may say the Roth conference put some fundamental news into new investors that made them act). The stock slips back to an intermediate term support level and price stabilizes ($1.8-2.2 range). At this point it is common for the stock to begin moving higher on a positive fundamental development (Closing of China investors/Network Convergence starting up). Perhaps the firm has raised guidance, announced a stock split or unveiled a new product but price slowly begins to move higher (Several Chinese contracts announce after Chinese investors close deal and Jack Lu gets appointed CEO). There is one problem, volume is noticeably lighter than previous rallies. The price rally continues but falls short of the recent new high ($2.5s in October). This secondary high will be an important point later in the formation of the pattern. After several days of strength, momentum once again fades and price begins to falter. Slowly the stock moves lower on no specific news and extremely light volume ($2.15 level to $1.9s). Sensing that sellers may not have an appetite to continue selling buyers reappear and the stock stops short of the intermediate term support level ($1.9s in late December). This secondary low completes the bottom parameter of a uniform or symmetrical triangle. Over time the stock begins to trade in an increasingly narrow range characterized by a series of lower highs and higher lows. As time passes traders grow to believe that the current stock price accurately reflects the true value of the stock. Volatility and volume slow dramatically as the stock approaches the apex of the triangle (We'll see how the stock reacts as it approaches the apex but there definitely is a lack of interest and consensus that it is not going anywhere). Then, abruptly there is a fundamental development that leads to a dramatic upside breakout. Volume swells and Wall Street analysts begin making new "buy" recommendations and raising their price targets. As prices moves beyond the upper parameter created by joining the recent new high and secondary high some investors that had felt the stock was fairly priced at lower levels begin selling but their shares are quickly absorbed by buyers. In fact, the demand for the stock becomes so intense that price very quickly surges beyond the recent new high. Weeks later the stock moves significantly higher.
The last part is the longs "hope" but as for the price remaining in this range, something has to give.........I just "hope" its not 35 cents.
BTW, I don't do much of TA on the blog but here's the last one I believe, on Sept 14, 2009
That was posted when the stock traded between $1.94-2.09 with 379,400 shares. My upside target was $3 in 20 days. On Sept 17, 2009, it traded up to $2.54 with 3.3m shares. Not exactly $3 but a nice jump nonetheless :-)
Have a good weekend everyone.